Tuesday, 24 April 2012

KUALA LUMPUR (April 24): RHB Research has raised its fair value for S P Setia Bhd to RM 4 and said the company’s recent venture into China made good sense.

In a note Tuesday, the research house said (i) The G-to-G tie-up underpinned SP Setia’s venture in the Qinzhou Industrial Park (QIP) development should enhance the credibility and chances of success of the project; (ii) Tier-4 city as an entry point can avoid the high regulatory requirements in housing sales; (iii) Timely entry to the Chinese market in the temporary sector downcycle; and (iv) The QIP project can potentially be worth more than RM20 billion.

If the 1st phase is proven successful, long-term value to SP Setia will be tremendous, it said.

“The risk profile of the company is expected to change given the size of the QIP project (13,591 acres). We are biased on the positive side due to the above factors. Initial funding and future working capital will be funded via debt and equity, which will be within SP Setia’s capacity given its current net gearing of 8%.

“Fair value is raised to RM4.00 as we impute only the DCF value from the Binhai project. Given minimal potential upside, we maintain our Market Perform call on the stock,” it said.